The business behind the show

Not much demand yet for premium video-on-demand

July 8, 2011 | 11:00
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The recent public flap between theater owners and studios over premium video-on-demand appears to be much ado about nothing -- at least for now.

Initial consumer response has so far been tepid to an experiment by four studios that signed up with DirecTV to offer movie rentals at home for $30 as little as 60 days after theatrical release, executives from three of those studios acknowledged privately because they were not authorized to speak on the record.

Beginning in April, the studios -– 20th Century Fox, Sony Pictures, Universal Pictures and Warner Bros. -– began testing so-called premium VOD. They have thus far offered 13 films, ranging from the comedies "Hall Pass" and "Paul" to action films including "Battle: Los Angeles" and "Sucker Punch" and dramas "Water for Elephants" and "The Adjustment Bureau." The pictures became available about two months after they debuted in theaters and one or two months before they were released on DVD.

Under their agreements with DirecTV, each of the four studios is expected to provide at least four premium VOD films to the satellite television service by the early fall.

As once reliable DVD sales continue to decline, Hollywood is scrambling to come up with new business models that yield additional revenue streams.

Theater owners were outraged in April when the studios teamed with DirecTV and executed their plan, arguing that it would encourage consumers to skip watching a movie on the big screen in favor of waiting to see it at home. The flap has since quieted down, though, with the cinema operators no longer publicly threatening to pull the studios' trailers or take other retaliatory actions.

Several studio executives, who declined to speak publicly about the matter, said that more testing would be necessary to determine whether -- and on what terms -- so-called premium VOD could be a viable business.

But they said that won't happen imminently. Instead of working exclusively with DirecTV after the current agreements expire, those studios want cable companies such as Comcast Corp. and Time Warner Cable to take part in the next premium VOD test as well.

Because those cable giants are still developing the necessary anti-piracy technology, the executives said, the next test might not happen until next year.

The reason the studios want to enlist the cable operators is to expand the number of people who can take part in the experiment -– only about 6 million of DirecTV's 19.2 million subscribers have the necessary setup.

Executives at three studios also said they were dissatisfied with the marketing effort made by the satellite broadcaster, and believe that was one reason why the results were modest. They declined to specify how many premium VOD rentals took place.

A spokeswoman for DirecTV declined to address the marketing complaints, but said, "We will evaluate with the studios after completing our test and make decisions from there."

One participating studio had no complaints about DirecTV, however. Twentieth Century Fox is willing to give the still-nascent venture time to connect with consumers and will continue offering more titles via the satellite-TV service, according to a person familiar with the News Corp.-owned studio's thinking.

Fox's view is more in line with the strongest proponents of premium VOD, who point out that many of the initial titles were not particularly popular at the box office either. In addition, the studios themselves haven't heavily promoted the early VOD availability on DirecTV.

The news that another multi-studio test of premium VOD won't happen for a while is at least a temporary relief to movie-theater operators, who feel they were blindsided by the first attempt.

"From this initial test the one result we can be absolutely be sure of is that studios need to take the theater industry into their confidence and inform them of plans before they implement anything that affects the theater business," said Patrick Corcoran, a spokesman for the National Assn. of Theatre Owners.

There will be ample opportunity to do just that. People familiar with the thinking of all four studios said they remain intent on figuring out the best way to make the premium VOD business work. That could include testing different prices, release dates and more popular movies, as well as adding the option to buy a DVD or digital download for a small additional fee.